Federal Reserve, Merchants to Jointly Seek Appeal of Leon Decision

In a surprise move, attorneys for the Federal Reserve and the merchant coalition which had brought suit told U.S. District Court Judge Richard Leon on Wednesday that they would jointly request an expedited appeal of his ruling on debit interchange.

Leon had issued a ruling on July 31 that overturned the portion of the Federal Reserve's debit interchange rule that established a debit interchange cap for large asset debit issuers and its network competition provisions.

Federal Reserve General Counsel Scott Alvarez told Leon that the Fed would file a notice of appeal on Wednesday and, in a particularly surprising move, also told him that the merchants who won the July 31 decision would join the Fed in asking for an expedited appeal of his decision.

“They don't do many expedited appeals over there,” said Leon, interrupting Alvarez and referring to the U.S. District of Columbia Circuit Court of Appeals which would hear the case.

Alvarez agreed but said that the Fed hoped an appeal from both the plaintiffs and defendant in the case would spur the court to move swiftly.

Alvarez also said the Federal Reserve would ask the appeals court to stay Judge Leon's decision pending appeal.

Leon reminded attorneys from both parties that his original stay, which he had continued once, was supposed to expire on Wednesday, and both parties presented arguments for why the judge should leave his stay in place, which he did in the end.

While the Federal Reserve Governors have the authority to write an interim rule (to replace the one he had invalidated), Alvarez contended doing so would raise more confusion and make the situation worse.

In a separate presentation lawyer for the plaintiffs, Shannen Coffin of the D.C. law firm Steptoe & Johnson largely agreed, though Coffin cited a previous case which, he said, appeared to give Leon authority to order the Federal Reserve to draft a new debit rule.

In any case, Coffin said the merchants were more interested in keeping a flawed rule in place than in going back to having no rule at all, which is what could happen if Leon lifted his stay and the Appeals Court did not grant one.

That response seemed to surprise Leon, who remarked on how the merchants are more willing to pay perhaps billions of more dollars – that they might not get back – then risk what could happen if the banks had no rule overseeing the fees.

Both sides have until Aug. 28 to present their arguments in favor of continuing the stay, though Leon observed that if the appeals court accepts the case the matter largely moves out of his jurisdiction.

The National Retail Federation, meanwhile, expressed its dismay at the Fed's plans to appeal.

“We are very disappointed to see the Fed giving in to the banks,” said NRF spokesman J. Craig Shearman.

“The facts are very clear that the Fed set the cap far higher (21.5 cents) than intended by Congress, and the court has insisted that the mistake be fixed as soon as possible,” Shearman said in the statement.

“Instead, the Fed has taken a position that will drag this out while retailers and their customers continue to pay billions of dollars in inflated fees that harm that U.S. economy. We want to see this case resolved today, not next year, so these fees can finally be brought under control,” the NRF spokesman said of the request for an expedited appeal.